"Price Action Only" traders - More likely to be successful?

[logic_man]

I read a lot of posts that say the only real way to succeed in trading is by "graduating" beyond FA and TA and using "price action" (PA) only (although, to be clear, price action is defined differently by different traders, but then so are FA and TA). But what kind of evidence is there that traders using PA are actually more likely to succeed than other traders? Maybe there is some evidence, but I seen it stated more as a truism than as something which has been empirically validated.

Now, I say this as someone whose sole approach to the market is through PA (no indicators or fundamentals) and I'll take any trade my strategy dictates even if it goes against my bias because my research shows that I can't outguess the strategy, so no use in trying anymore. So, I'm in no way a fan of FA or TA, but I'm still curious about the performance claims made for PA, since if it was so much more likely to lead to success, why isn't everyone doing it? The way those who use it describe it, it's not as if it is more (or that much more) intellectually-challenging than either FA or TA.

 

[bigsnack]

In my opinion, price action is actually a lot simpler than trying to decipher FA or TA. I think people make trading a lot more complicated than it has to be. I remember reading a post from someone on a different forum, where they had been trying to squeeze advice out of a "pro" that they knew. Finally the pro told this person to "buy when the market is going up and "sell when it is going down". I feel that trading can be that simple in basic approach.

I think the reason that people mention "graduating" to just price action is that over time, one can begin to see the markets patterns without the use of other indicators. My assumption is that traders strive to simplify as they go along, and using price action only is one of the simplest ways to trade, next to simply trading the DOM action itself.

 

[logic_man]

Quote from bigsnack:

In my opinion, price action is actually a lot simpler than trying to decipher FA or TA. I think people make trading a lot more complicated than it has to be. I remember reading a post from someone on a different forum, where they had been trying to squeeze advice out of a "pro" that they knew. Finally the pro told this person to "buy when the market is going up and "sell when it is going down". I feel that trading can be that simple in basic approach.

I think the reason that people mention "graduating" to just price action is that over time, one can begin to see the markets patterns without the use of other indicators. My assumption is that traders strive to simplify as they go along, and using price action only is one of the simplest ways to trade, next to simply trading the DOM action itself.

While I'm not necessarily disagreeing with you, doesn't the hypothesis that price action is easier to trade, yet fewer people use it than use FA or TA, go against human nature to be lazy?

BTW, I agree with the pro in your anecdote , with the stipulation that "going up" and "going down" are very strictly defined.

 

[bigsnack]

Quote from logic_man:

While I'm not necessarily disagreeing with you, doesn't the hypothesis that price action is easier to trade, yet fewer people use it than use FA or TA, go against human nature to be lazy?

BTW, I agree with the pro in your anecdote , with the stipulation that "going up" and "going down" are very strictly defined.

Agreed. It's a lot easier to say that if you've been watching the same futures contract for 12 years straight

Some of the best money I ever made trading was when I first started out. I had "found" a terrific two candle pattern on the daily chart, which gave me an expected break of the previous days high / low based on whether the pattern was bearish or bullish. I cleaned up for weeks on this very simple "price action" based pattern. Of course I had to go and complicate things because at the time I wasn't ready to accept that 30% of my trades were going to be losers. I had to find that something that was going to get my win rate as close 100% as possible. That's when the holy grail quest started, along with my 18 months of pain and frustration. I would have been so much better off if I had just tried to learn how to spot a loser early and close it out.

 

[bigsnack]

Quote from logic_man:

While I'm not necessarily disagreeing with you, doesn't the hypothesis that price action is easier to trade, yet fewer people use it than use FA or TA, go against human nature to be lazy?

Well I guess I would have to say that price action is easier, after you've acquired enough face time to see the same things hundreds of times over and over and over. I think people search for the holy grail because they don't want to have to think about the trade, they want to be on autopilot and have system where green means buy and red means sell. The lesson that I learned was that if I had just spent all of that time watching price instead of grail searching, I would have gotten to CP a heck of a lot faster.

 

[crazyAtrader]

Not every price action only trader is successful. Don't make the assumption that understanding price action in the now is an easy task; it's far from easy, in fact, it's incredibly hard and time consuming.

To understand price action you must first understand what makes the market technically turn in all the various market conditions so you can determine the surprising events when it's not turning when it should have turned and many other potential probabilities, before that stage is mastered any analysis is completely futile, you are just analyzing randomness. No sense in studying the action of price around "key" areas, when you don't even know what a key area is. You think you know though so you keep wasting your time, until you finally know.

Now, once you finally understand what makes the market technically turn, on average it takes a trader appproximately 3-5 years of watching price alone without the usage of distracting indicators, only then, are you ready to listen and learn to how to react to the different price action events around these key areas and from there you are now finally ready to determine direction beyond random probability.

Anyone can post a chart and do Monday morning quarterbacking and give a detailed explanation of what happened, many forms of technical analysis are great for explaining the past (this is why there are so many successful snake oil salesmen out there), however, it has very little predictive value for the future (and why there are so many failed traders taking such "courses') but sadly there's not a whole lot of people out there teaching what price action truly is because a large part of "getting it" is dependent on you and not a book, a teacher or a mentor; and of course, that and the fact that very few traders ever reach the point of "getting it", and even less probable to attempt to teach it.

Crazy A

 

[Zr1Trader]

If you want a very in depth Price action approach to the markets read "Trading Hammers (revisited)" a thread here at ET.


There is more than just entries to consider to be successful . Entries are only the tip of the iceberg for any method.

Entry
Trade management is very important. (trails, targets ect.) when to do what.
Risk Rules per trade
Risk rules (day limits)
Position sizing for the appropriate conditions.
Context of the market. (did we just have a 100pt drop when this setup formed or have we been chopping all day when this setup formed)
Disaster management (did my connection just go belly up, did a terrorist attack happen)
Contingency plan before you stop gets hit(stop and reverse conditions)

Every signal facet of detail you can think of regarding trading should be thought out so you are in full control at all times and know what to do in every situation .


IMO Strategy coding would be very very difficult without millions of dollars to cover all of the above material in detail. I personally believe better returns are achieved with PA trading using your brian to adapt to conditions. A computer cannot do that.

Im not saying a computerized system can't be profitable but IMO your brain can understand the current situation in context much better.

 

[logic_man]

Quote from bigsnack:

Well I guess I would have to say that price action is easier, after you've acquired enough face time to see the same things hundreds of times over and over and over.

So I guess my question is whether this "face time" learning is more likely to occur using price action because it's more "real" than other trading methods? Guys using TA spend just as much time with charts, no? Guys using fundamentals spend a lot of time poring over SEC filings, don't they?

BTW, I'm not trying to be annoying by asking questions, just trying to get a conversation going about why there seems to be this aura around PA trading that doesn't exist for other methods. "TA is crap" threads or "Elliott Wave is complete bullshit" or "yet another example of why markets don't correlate to fundamentals" threads abound, but PA seems to be held in higher respect on this site and I'm just curious whether there is any evidence to support that. If we all know that 90% of traders fail to be profitable, if we could determine that, e.g. only 50% of PA traders fail, that would be huge. I've just never seen any data on this and find it an interesting topic.

 

[logic_man]

Quote from crazyAtrader:

Not every price action only trader is successful. Don't make the assumption that understanding price action in the now is an easy task; it's far from easy, in fact, it's incredibly hard and time consuming.

To understand price action you must first understand what makes the market technically turn in all the various market conditions so you can determine the surprising events when it's not turning when it should have turned and many other potential probabilities, before that stage is mastered any analysis is completely futile, you are just analyzing randomness. No sense in studying the action of price around "key" areas, when you don't even know what a key area is. You think you know though so you keep wasting your time, until you finally know.

Now, once you finally understand what makes the market technically turn, on average it takes a trader appproximately 3-5 years of watching price alone without the usage of distracting indicators, only then, are you ready to listen and learn to how to react to the different price action events around these key areas and from there you are now finally ready to determine direction beyond random probability.

Anyone can post a chart and do Monday morning quarterbacking and give a detailed explanation of what happened, many forms of technical analysis are great for explaining the past (this is why there are so many successful snake oil salesmen out there), however, it has very little predictive value for the future (and why there are so many failed traders taking such "courses') but sadly there's not a whole lot of people out there teaching what price action truly is because a large part of "getting it" is dependent on you and not a book, a teacher or a mentor; and of course, that and the fact that very few traders ever reach the point of "getting it", and even less probable to attempt to teach it.

Crazy A

But the things you say about the difficulty of learning PA are also true of other methods, aren't they? Learning to find the nuggets of insight in SEC filings takes more than just rudimentary accounting knowledge, for example.

But, it basically sounds like you would tell anyone who was a beginning trader to go straight to studying PA, do that for 3-5 years before committing any real money and then begin to trade only if they could be profitable on a sim. At the end of such a course of training, what probability would you give to that person's success? 50%? 75%? 90%?

BTW, I agree with you that once you "get it", you're not really all that eager to tell anyone exactly what you "got", whereas guys who have not "got it" but "got" something that they can make sound half-way plausible, even though it doesn't really work, will shout it from the rooftops!

 

[rew]

Quote from logic_man:

I read a lot of posts that say the only real way to succeed in trading is by "graduating" beyond FA and TA and using "price action" (PA) only (although, to be clear, price action is defined differently by different traders, but then so are FA and TA). But what kind of evidence is there that traders using PA are actually more likely to succeed than other traders? Maybe there is some evidence, but I seen it stated more as a truism than as something which has been empirically validated.

Now, I say this as someone whose sole approach to the market is through PA (no indicators or fundamentals) and I'll take any trade my strategy dictates even if it goes against my bias because my research shows that I can't outguess the strategy, so no use in trying anymore. So, I'm in no way a fan of FA or TA, but I'm still curious about the performance claims made for PA, since if it was so much more likely to lead to success, why isn't everyone doing it? The way those who use it describe it, it's not as if it is more (or that much more) intellectually-challenging than either FA or TA.

I fail to see any real distinction between "price action" and TA. I define TA as any trading method that's driven solely by the price and volume charts. People using "price action" are using *some* sort of pattern matching to decide when to enter a trade, and some purely chart based rule to exit, so how is that not TA?